What is WPI?

Anand Rawani, ET BureauNov 15, 2009, 01.50am IST

WPI is a price index representing the wholesale prices of a basket of goods. In several countries such as India it is used to measure the inflation, the general rise in the prices of goods. It is released on a weekly basis on every Thursday to measure the change in the wholesale prices of a set of goods. As the name suggests it does not take into account the price at which consumers buy goods but on the wholesale basis. The rationale of having WPI is to know the demand and supply condition of goods included in the economy. Earlier the base year for the calculation of WPI was 1981-82. But with effect from April 1, 2000, the office of the economic adviser to the government of India, part of the ministry of commerce & industry, revised the base year to 1993-94. The WPI is based on the prices of 435 commodities.

Why is it in news?

WPI became the buzzword after the news of its replacement by a new comprehensive WPI. It is expected to be functional from the start of April 2010. For the reporting of wholesale price data of manufactured products, the government has already moved to a monthly reporting system. However, for other products — primary and fuel — the prices will be released on weekly basis. For the current index the data is sourced from around 2,000 companies, whereas, for the new index prices will be sourced from over 6,000 companies. The base year for the new index is going to be 2004-05. Also, according to the proposal, the number of products included for the calculation of WPI will increase from 435 to 1,224 as many new products such as cell phones, laptops and digital cameras will be added.

How is it different from consumer price index (CPI)?

While WPI represents the wholesale prices of goods, CPI indicates the average price paid by households for a basket of goods and services. It is also used to measure the inflation. Four kinds of CPIs are released namely CPI for urban non-manual employees, industrial workers, agricultural labourers and CPI for rural labourers. Even the wealth managers use inflation calculated based on CPI for the financial planning because CPI is based on price that consumer pay.

What's the practice elsewhere?

Some countries such as India and Philippines use WPI to measure the inflation. They calculate inflation as percentage change in WPI for that period. Now India and the US come out with producer price index. CPI is also used in different countries, however, with different names. For instance in United Kingdom it is called retail prices index. In Canada CPI is published on a monthly basis.